In subsequent chapters and
Chapter 4, in particular, we will encounter
many instances of financial strategies based primarily on anticipated
changes in market interest rates. Knowing how to forecast correctly
these changes can, therefore, be one of the most important tasks
of an analyst. The following distinguishes the different components
that influence interest rates. Additional guidelines for forecasting
of interest rates can be found in Chapter
15 Section C-6.

Rates of return can be broken down
into 6 distinguishable components:
1- compensation for loss of purchasing power, i.e. inflation
2- compensation for the non-use of money
3- liquidity preference
4- length of contract
5- monetary policy impact
6- market risk premium.
The first 5 components affect all financial assets, the sixth
differs according to type of security and type of company and
is undertaken in Section
E.